How Steve Jobs convinced AT&T to share revenue

By Peter S. Cohan, Wall & Main

In June 2007 when Apple's first iPhone was sold, cell phones were already a big market. But by 2009, Apple controlled 30 percent of it. How did Steve Jobs convince AT&T to give Apple a groundbreaking deal in exchange for the exclusive right to provide telecommunications service for the iPhone in the U.S.?

When he worked at telecommunications consulting firm, Adventis, Raj Aggarwal met with Mr. Jobs twice a week for several months. In an August 15 interview, Mr. Aggarwal explained how Steve Jobs persuaded AT&T's Cingular Wireless to provide service for the iPhone with an unprecedented revenue sharing agreement.

In 2006, CSMG acquired Adventis and Bain & Co. hired Mr. Aggarwal as a consultant before he left in August 2008 to found Localytics, a 50-employee, Boston-based "analytics and marketing platform for mobile apps on a billion devices running 20,000 apps. Microsoft and The New York Times are among the companies that use Localytics to guide the allocation of their mobile marketing budgets with the aim of boosting the lifetime value of their customers," according to Mr. Aggarwal.

As most everyone knows, when Mr. Jobs first launched the iPhone in June 2007, he cut a deal with AT&T in which Apple would get a portion of AT&T's revenue. According to the Harvard Business School case, Apple Inc. in 2010, "AT&T, the exclusive U.S. operator for the iPhone, agreed to an unprecedented revenue sharing agreement — Apple got about $10 a month from each iPhone customer's bill – which gave Apple control over distribution, pricing, and branding."

Mr. Aggarwal, whose Adventis consulting stint with Mr. Jobs occurred in "early 2005," said that Mr. Jobs was able to pull off the AT&T deal because of his personal involvement in the details of the iPhone, his efforts to build relationships with carriers, his willingness to make demands that others perceived as outrageous, and his nerve to bet major resources on that vision.

Mr. Aggarwal pointed out that Mr. Jobs was different than other CEOs who delegate strategy implementation. "Mr. Jobs met with the CEOs of each carrier. I was struck by the hands-on nature and his desire to make his mark on everything the company was doing. He got deeply involved in the details he cared about. He made it happen," said Mr. Aggarwal.

Mr. Aggarwal was impressed by the way Mr. Jobs was willing to take a risk to realize his vision. "In one meeting in the conference room with Mr. Jobs, he was annoyed that AT&T was spending too much time worrying about the risks of the deal. So he said, 'You know what we should do to stop them from complaining? We should write AT&T a check for $1 billion and if the deal doesn't work out, they can keep the money. Let's give them the $1 billion [Apple had $5 billion in cash at the time] and shut them the hell up,'" Mr. Aggarwal recounted.

Although Mr. Jobs did not actually offer AT&T the cash, his willingness to do so made an impression on Mr. Aggarwal.

Mr. Aggarwal also found Mr. Jobs unique in his outrageous demands. As he explained, "Mr. Jobs said, '$50 a month unlimited voice, data, and SMS plan — that's our mission. We should ask for and go after something unreasonable that no one has been willing to accept.' He would come up with these outrageous demands and fight for them — getting much more than he otherwise would have."

From the iPhone, AT&T ended up getting nearly twice the average revenue per user of its peers. According to Apple Inc. in 2010, AT&T's iPhone ARPU was $95 compared to $50 for the top three carriers.

AT&T was proud of the deal it cut with Mr. Jobs and clearly wanted what Apple was then offering. According to my February 2012 interview with Glen Lurie, then President of Emerging Enterprises and Partnerships for AT&T, AT&T's exclusive relationship with Apple resulted, in part, from Mr. Lurie's ability to develop a reputation with Mr. Jobs and Tim Cook for trustworthiness, flexibility, and speedy decision-making.

As a way to build that trust, Mr. Jobs needed to be certain that Apple's iPhone plans would not be leaked to the public. And Mr. Lurie's small team evidently satisfied Mr. Jobs that it could be trusted with sacrosanct business details about the iPhone. The result was AT&T's 2007 to 2010 exclusive deal to support the iPhone.